April 11, 2019

Pay or use live TV streaming subscription service?

Tens of millions1 of people are expected to watch this Sunday’s final-season premiere of Home Box Office’s (HBO) Game of Thrones. Given recent trends, the network is undoubtedly betting that a significant proportion of viewers can result in new subscribers, from either a pay-TV provider or its own direct-to-consumer (DTC) service, HBO NOW.

The explosion of streaming services has popularized the binge-friendly strategy of releasing full season episodes, simultaneously. However, the traditional release cycle—and, more specifically, a season premiere—still translates into big business for TV networks.

Traditionally, series premieres have triggered sizable increases in new subscribers. In April 2015, for example, the Season 5 premiere of Game of Thrones coincided with the launch of HBO NOW. This marked an inflection point for the industry—and a portent of similar offerings from rival networks.

US consumer streaming subscriptions (69 percent), of which DTC services are a subset, now exceed traditional Pay TV subscriptions (65 percent),2 as many users add to or replace their existing video service provider with flexible and low-cost services delivered over the internet. Networks, through DTCs, allow consumers to stream their scheduled programming, through live TV streaming services, and HBO’s coming season premiere could also drive more subscribers, who no longer have a Pay TV service, to its DTC service.

Although original content premieres often spur subscriber acquisition growth, they can also fuel password sharing. Some estimate that this represents 20 percent of lost revenue opportunities.3 Although streaming companies allow sharing overall, what if sharing accounts for more activity than what the industry estimates?

Deloitte’s recently released Digital media trends survey, 13th edition gives some evidence that companies could be underestimating the extent of password sharing. According to the survey, 29 percent of consumers pay for live TV streaming services, with an additional 12 percent saying they use, but do not pay for, the same service.4 These findings therefore suggest that the ratio of paid subscribers to “freeloading” users is about 2.5:1. In other words, there is a “moocher” factor of 41 percent for every paid subscription.

Since this ratio is meant to reflect non-revenue generating subscribers, it could be pared slightly to discount non-payers (e.g. children) that use a log-in of a payer family member (e.g. parent). Streaming companies allow for some sharing within a household, however most sharing between households, more explicitly highlights lost revenue opportunities.

The bad news for streaming services is that the prevalence of “mooching” could grow, driven by a wave of price hikes over the past 12–18 months.5 These have raised the cost of subscriptions by 15 to 50 percent,6 contributing to some subscriber churn. And it’s arguable that some of these former subscribers could become new moochers. This could also exacerbate some other pressure on subscribers. Additional data from the survey shows that “subscription fatigue” related to managing multiple subscriptions is becoming more pronounced, with 47 percent of consumers saying it is a cause of frustration.

However, many DTC companies may be perfectly happy for mooching to continue, considering it expands viewership and exposure for all original content, not just top performers. In addition, mooching could also help reduce churn, given that “generous” paying subscribers must consider their moochers before they let their subscriptions lapse.

The streaming market is about to become very crowded with major technology and studios entering the fray with their own service later this year. As competition intensifies among streaming companies it will be interesting to watch if companies regulate password sharing more vigorously.

Get in touch

Principal | US Telecom, Media & Entertainment Lead

Kevin is a vice chairman and leads the US Telecommunications, Media & Entertainment (TM&E) practice of Deloitte. Kevin has 30 years of experience in strategic and operational planning, as well as impl... More

Executive Director | Center for TMT

Jeff Loucks is the executive director of Deloitte's Center for Technology, Media & Telecommunications, Deloitte Services LP. In his role, he conducts research and writes on topics that help companies ... More

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as "Deloitte Global") does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the "Deloitte" name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms.